The Pension: Take the Annuity or Lump Sum?

Shawn Plummer

CEO, The Annuity Expert

You are retiring soon, and you have a pension plan. Should you take the annuity payout or lump sum? Should you transfer to a better annuity instead of the plan’s payout option. This guide will go over the pros and cons so you can weigh your options to choose from.

Upon retiring, companies that offer a retirement pension will typically offer 2 options on how the retiree enjoys their benefits, taking a lump sum of money or a payout for a fixed period of time or a lifetime. If the owner chooses the lump sum option, they can move the money wherever they please. If the owner chooses the payout option, they are utilizing an annuitized payout from an annuity.

There is a 3rd option: choosing the lump sum and transferring the funds to a deferred annuity with an income rider. The owner can supplement their guaranteed income for life with more flexibility throughout retirement by going this route.

Pros and Cons

There are significant pros and cons when making this decision. Below is a “T-Chart” weighing both the good and the bad.

Income RiderPension Income
Guaranteed income for lifeGuaranteed income for life or fixed period
Flexibility to start/stop income streamPotential higher payouts
Potential paycheck increases for inflation.No additional fees
Costs range from no cost to 1.25% annuallyIrrevocable payments
Potential to earn interestCan not be surrendered; No refunds.
Future income guaranteed todayEarns approximately 1% interest annually
Can be surrendered or cashed inNo liquidity
Lump-Sum Death BenefitNo death benefit or series of payments
Help with long term care costsIt cannot help healthcare costs
Standard liquidity

Estimate Your Retirement Income Payments

Take advantage of 17 different annuity calculators to generate estimates, then request a quote.

The Risk of Pension Plans

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Taxes

Like other qualified retirement plans and annuities, the income is subject to Federal and State taxes.

Pension Companies

Maximizing a Pension

If you choose the pension payout option, watch this video on how to get the most out of your payments and protect your spouse financially at the same time.

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Conclusion

Now you have a better idea of what you gain and what you give up. The logical next step would be to compare the retirement income potential you can receive with your current retirement plan.

Use a pension lump or annuity calculator.

Feel free to request a quote to compare and contrast your retirement income options here.

Why you can trust The Annuity Expert

At The Annuity Expert, we strive to help you make confident financial decisions regarding annuities. Content provided is created by an independent licensed financial professional.

The Annuity Expert is an online insurance agency that provides the widest variety of annuities in the United States. When you buy an annuity directly from us, we receive a predetermined commission from the insurance company (not you). While your annuity is active, clients are not charged any servicing or management fees. Learn more.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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